Traveller's tales from South Africa

Dominic Wheatley, Chief Executive at Guernsey Finance – the promotional agency for the island’s finance industry internationally, has visited South Africa to discuss the evolution of investment funds and fintech. Two quite different topics, but with surprisingly consistent themes: stability, excellence, global standards and transparency. He also had the chance to muse on the extant benefits of Brexit.

Since 1994 South Africa has undergone substantive political and social transformation. Resourcefulness is a key attribute of the country; evinced by the fact that so much change has been achieved without major economic cost. Change in the country is clearly ongoing and apparent in the dynamic and fluid business environment and in the very positive attitude of the people. Even so, events elsewhere now impinge on that change. The drop in world commodity prices that underpins much of South Africa’s core mining industry, has meant that annual economic growth here is just 2%. Nonetheless, volatility and risk are an inherent part of the emerging market mix right now and South Africa is a natural market for international financial products.

South Africans are all too aware of the risks following the substantial drop in the exchange rate of the rand late last year. They understand how the fall in world commodity prices has been outside their control and focus on doing their best in the circumstances they face and in controlling what they can.

In the run up to the Brexit vote they had a profoundly different world view; a view informed by their own understanding of what is achievable as an independent nation in a world of open trade. They did not understand ‘Project Fear’ and, in the main, fell on the side of the Leave debate. After all, if they can succeed with their soft currency and other disadvantages, why should the UK not be able to do so with its dominant market position, international connections and political influence, economic critical mass and AAA credit rating.

Then, of course, the referendum result came in. A Leave vote was no more the generally expected outcome in South Africa than it was in the UK (or, for that matter, Guernsey). Even so, the response in South Africa was much more positive than it was in the UK (or naturally in the EU). This world view coloured both their expectations of the UK outside the EU and for their own prospects of trading with the EU and the UK.

As a third country South Africa enjoys a substantive trading relationship with the EU, though the bulk of this trade is actually ultimately destined for the UK market. South Africa’s positive expectation is that their UK export environment will improve as they will remain on familiar terms. Hearing this message repeated several times and thinking matters through it occurred to me that in many ways Guernsey is in a similar position, at least as a finance centre. An example of this is in the fintech space where two of the entrepreneurs we met with are using Guernsey fund structures to support UK start-ups in the insurance space. It is entirely possible that, as UK barriers reduce to Guernsey firms, the island will become an effective incubator jurisdiction for entrepreneurs from around the world looking to develop innovative retail financial products for one of the world’s most sophisticated finance markets.

In South Africa it was very much business as usual as far as international finance was concerned. They will still look for a stable and secure environment and remain mindful of the reputation for international compliance, cooperation and transparency of their chosen offshore centre (all the more so since the Panama Papers which broke the last time I was there). Equally, they require a strong legal environment and effective regulation. Similarly, they want substance and excellence in implementation and advice.

Our correspondents in South Africa were dismissive of the notion that London’s position as the leading global financial destination would be significantly affected. Moreover, Guernsey’s proximity to London (Guernsey is after all the nearest offshore finance centre to the City) and our complimentary business environment makes the synergies now available attractive to say the least. In that respect, the vibrancy and positive attitude in South Africa could become contagious elsewhere.

An original version of this article was published by FTSE Global Markets, August 2016.

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